Thinking about insurance in any area, whether it be auto, home, life, or health, can be overwhelming for an individual, let alone an entire community. In the world of homeowners associations, the task of choosing the right community insurance can be even more stressful given the broader spectrum of coverage’s available and necessary for HOA management. An under-informed manager could end up costing an HOA more than they bargained for when critical considerations are overlooked. These guidelines can help HOA managers clarify a path to figuring out the best community insurances for their HOA.
Identify the insurance provider. One of the single most important decisions an HOA can make is choosing an insurance broker or agent. Look for trusted providers with experience particularly in community insurance. Referrals from professionals like other insurance providers, accountants, and attorneys can go a long way in finding the best broker or agent to fit your community’s needs.
Determine coverage areas. There are many types of coverage available to HOAs. Some are required specifically by an HOA’s Bylaws. Others depend on the type of association, extent of responsibility held by HOA, and complexity of the community. For instance, most states require HOAs to hold Directors and Officers (D&O) insurance, which protects board members from exposure to monetary and non-monetary complaints and claims. Jamie George, Insurance Product Manager for the West/Texas regions of FS Insurance Brokers explains that if an association has a D&O policy in place when a claim is filed, it covers the action of its officers and Board members—past, present and future—from previous and future acts. Other types of coverage include Fidelity Bond, General Liability, Commercial Auto, and Workers Compensation.
Purchase proper levels of coverage. To position the association with proper coverage, HOA managers can work with the insurance provider to determine adequate levels of coverage. What may seem like an outrageous amount of coverage now could pan out to be insufficient down the road. Ultimately, the amount of coverage will depend on the association’s finances and asset values. Robert Galvin, a partner at Davis, Malm & D’Agostine PC in Boston who specializes in representing condos and co–ops, cautions, “In some states, judgments are very, very high. You can tell a board that it’s ridiculous to carry X amount, but the next day that association could get sued for that amount.”
Understand (and carry) an umbrella policy. While a viable supplement to general and D&O policies, umbrella policies do not provide added coverage to both liability and property insurance as some HOA managers might presume. An umbrella policy is designed to fill any liability gaps after primary liability limits have been exhausted.
Insurance is sometimes referred to as a necessary evil. For the homeowners’ association, insurance is necessary in that U.S. states require some level of coverage and that without it, an HOA’s exposure to loss can prove devastating. On the other hand, insurance can be considered evil in that the whole process of identifying, purchasing, and handling it can be time-consuming and expensive. Don’t lose heart. With a trusted insurance provider and a well-informed Board and HOA manager, navigating through community insurance can be easier than most expect it to be.
Shalon Clevenger, HOA Management Correspondent